New Dow will be streamlined, leaders say ahead of split from DowDuPont

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Dow leaders set the vision for a streamlined new company during an event Wednesday in New York City.

Jim Fitterling, CEO of Dow and chief operating officer of DowDuPont's Material Sciences Division, and Howard Ungerleider, president and chief financial officer of Dow and CFO of DowDuPont, shared changes in Dow's business lineup, mindset, cost structure and more.

The session offered clarity to the investment community ahead of the expected separation of DowDuPont into three companies to be called Dow, Corteva and DuPont. The first company to spin off will be Dow on April 1.

Fitterling said Dow will have powerful positions in market-leading businesses. It will have a streamlined corporate structure, a smaller workforce and a focus on shareholder remuneration.

"Obviously, the scope of the company is different," Fitterling said. "...It's good. It's focused, and it's streamlined for us."

The company will focus on six key businesses in three sectors: Performance Materials and Coatings, Packaging and Specialty Products, and Industrial Intermediates and Infrastructure. Within those sectors, the new Dow will focus on six businesses, rather than the old Dow's 15-plus businesses.

This will focus the company's attention on its key markets, Fitterling said.

The new Dow will spend less on capital expenditures and emphasize higher value returns on investment. Reducing costs will help liberate cash to remunerate shareholder, and focus on methodical growth, Fitterling said.

The number of employees at the new Dow will be about 37,000. The company had peak employment of about 56,000 in 2016. Some employees will split off to the new DuPont and Corteva, and there have been cuts related to ongoing productivity and integration actions as well as natural attrition. The vast majority of job changes have already taken place, a Dow spokesperson said.

Employees will be more focused on the businesses directly, and administrative costs will be reduced as a percentage of sales. The organizational layers between the CEO and the frontline will drop from up to eight currently to a maximum of six in the new company.

Dow will continue to emphasize digitization, both in its business and manufacturing sides. Digitization can improve productivity, lower costs and create safer work environments in manufacturing, Fitterling said. He said on the business side, it improves customer experiences and can lower costs. He pointed to a system used by the company's Silcones business for online ordering and payments as an example.

"We're going to be taking that capability across the businesses," he said.

Fitterling also highlighted the diversity of its new board and management team.

"Two-thirds of this team are new to their roles so there's been quite a substantial change to the structure of the organization, and they're firing on all cylinders" Fitterling said.

For shareholders, Dow plans to maximize value, Ungerleider said. The company will build a strong credit profile, focus on growth investments, implement a dividend policy and complete share repurchases.

Dow plans to have a dividend policy targeting an industry leading long-term payout ratio of 45 percent of net income, Ungerleider said. He said there is a near-term target to put at least 20 percent of net income into stock buyback programs.

Return on invested capital could go even higher by controlling costs, and from growth opportunities from capacity and demand increases, Ungerleider said.

"We have a significant amount of upside potential form both a cost side and growth potential," he said.

DuPont and Corteava will have similar investor events on Thursday to share plans for those new companies to be spun off from DowDuPont later in 2019.